NDR 2013: Housing grants alone will not solve the public housing problem

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Written by Ng E-Jay
19 August 2013

The problem with rising cost of home ownership cannot be solved by merely giving more grants. In the 2013 national day rally speech, PM Lee said that families who opt for two-room flats and wish to upgrade to a three-room flat later on in life can qualify for a Step-Up Housing Grant. The Special CPF Housing grant will also be extended to those who wish to purchase four-room flats, and the income ceiling will also be raised to include middle-income households.

However, these measures by themselves will not solve the underlying problem. The cost of public housing in Singapore has risen much faster than the rate of inflation as well as the rate of wage growth. HDB flat prices have become more and more unaffordable despite all these grants. Increasing the grants alone will not help much if prices continue to increase at the current rate.

Currently, the majority of families take out a 25 to 30 year mortgage to purchase their HDB flat. We must ask why this must be so. Such a long mortgage term eats into their savings for retirement and hinders their ability to accumulate wealth for their golden years. If you have to take out such a lengthy mortgage term, it means the home was unaffordable to begin with.

PM Lee took a lot of effort to illustrate that BTO prices can be quite reasonable, citing examples from Fernvale in Sengkang. However, for the people purchasing those flats, are their incomes commensurate with the purchase price? Also, such reasonable prices as cited in PM Lee’s speech are not truly across the board. In other locations, BTO flat prices are far higher.

Grants alone will not make housing more affordable if prices continue to grow at a fast pace. There must be more measures to ensure that prices stabilize. While PM Lee said that prices should remain stable, he did not elaborate on what the government planned to do to achieve this outcome. His fixation on housing grants does not alleviate the anxiety of future home buyers.

To address the underlying problem, the government must increase the supply of BTO flats, impose tighter regulation on the resale market which has already spiraled out of control, and increase overall wages.

In the past, the government failed to build BTO flats in time to meet demand. They government went ahead to increase the population, but they failed to build all the necessary housing and transportation infrastructure to meet the increased population’s needs. This was the biggest failing of the government is recent years.

Moving ahead, the supply of BTO flats must be ramped up and there must also be much tighter control of PRs purchasing flats from the resale market. We cannot simply liberalize the entire HDB market to all and sundry! We need stricter controls, with Singapore citizens taking first priority.

We need more transparency and accountability from the HDB as well. The HDB must disclose more fully the costs of constructing BTO flats as well as the cost of the land it bought from the government to build those flats.

The HDB has already moved to delink BTO prices from the resale market, which is a good thing. Now, the HDB must take the next logical step, and turn the public housing project into a zero profit project for the government.

This means that HDB must peg the cost of BTO flats to the cost of construction and land acquisition, and not profit from the transaction. BTO flats and public housing in general is an essential need — they should not become sources of government revenue and profit.

Longer term, the only real solution is to increase wages without putting upward pressure on flat prices. That requires a combination of robust economic growth as well as improved regulation regarding the HDB resale market. Thus far, in recent years, wages for the lower income have stagnated whilst resale prices have skyrocketed out of control. This combination has been disastrous on the lower and middle income, especially on single parents who find themselves on the losing end.

BTO flats must be made more available to single parents, who should be given a broader spectrum of grants and assistance. This group is especially vulnerable and they must be given all the help they can. It is high time the government moved away from its narrow mindset that helping single parents would mean undermining the traditional family unit. This is totally untrue. It is very sad that the government has thus far chosen to think in this fashion.

Both singles and single parents currently have access to the BTO market under the new rules, the BTO market is still very tight, as evidence by the fact that the newest BTO launch was 50 times over-subscribed by singles. The government needs to work quickly to relieve this pent-up demand and increase supply to work off the backlog. Otherwise, singles and single parents will still need to wait literally years before they can get their keys to the new flat.

Grants are good, but the underlying problems facing the public housing market still need to be addressed. That is where PM Lee’s speech fell short.

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